Value Analysis: Value analysis is an approach to cost saving that deals with product design. Here, before making or buying any equipment or materials, a study is made of the purpose to which these things serve. Would other lower-cost designs work as well? Could another less costly item fill the need? Will less expensive material, do the job? Can scrap be reduced by changing the design or the type of raw material? Are the seller’s costs as low as they ought to be? Suppliers of alternative materials can provide the ample data to make the appropriate choice. Of course, absorbing and reviewing the data will need some time. Thus the objective of value analysis is the identification of such costs in a product that do not in any manner contribute to its specifications or functional value. Hence, value analysis is the process of reducing the cost of the prescribed function without sacrificing the required standard of performance. The emphasis is, first, on identification of the required function and, secondly, on determination of the best way to perform it at a lower cost. This novel method of cost reduction is not yet seriously exploited, in our country. Value analysis is a supplementary device in addition to the conventional cost reduction methods.
Value analysis is closely related to value engineering, though they are not identical. Value analysis refers to the work that purchasing department does in-this direction whereas value engineering usually refers to what engineers is doing in this area. The purchasing department raises questions and consults the engineering department and even the vendor company’s department. Value analysis thus requires wholehearted co-operation of not only the firm’s expertise in design, purchase, production and costing but also that of the vendor and other company expertise, if necessary. Some examples of savings through value analysis are given below:
- Discarding tailored products where standard components can do.
- Dispensing with facilities not specified or not required by the customer, for example, doing away with headphone in a radio set.
- Use of newly-developed, better and cheaper materials in place of traditional materials.
Taking the specific case of TV industry, there are various components of cost, which can be questioned. The various items are as under:
- Whether to have vertical holding chassis or the chassis should be tied down horizontally. In case, chassis is held vertically, additional expenditure in terms of holding clamps is required.
- Whether to have plastic cabinet or wooden cabinet.
- Whether to have two speakers or one speaker.
- Whether to have sliding switches or stationary switches.
- Whether to have PVC back cover or wooden back cover.
- Whether to have costly knobs or cheaper knobs.
- Whether to have moulded mask or extruded plask.
- Whether to have Electronic Tuner or Turret Tuner.
- Whether to have digital operating unit or noble operating unit.
Cost control is applicable only to such costs, which can be altered by the management on their own initiative. It may be noted in this context that, by and large, non-controllable costs exceed far more than controllable ones thereby restricting the scope of profit improvement through cost, control. Of course, attempts may be made to convert an uncontrollable cost into a controllable one. Vertical combinations to secure control over sources of supply provide an example. So also instead of buying a component, a firm may decide to make the conversion possible.
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